Should You Pick FedEx Stock At $300 After Q3 Earnings Beat?

FedEx stock (NYSE: FDX) recently reported its Q3’24 results (fiscal ends in May), with revenue falling short and earnings exceeding our expectations. The company reported revenue of $21.7 billion and adjusted earnings of $3.86 per share, compared to our estimates of $22.0 billion, and $3.58, respectively. Not only did FedEx beat earnings, it raised its outlook and announced a new $5 billion share buyback plan, likely boding well for its stock. FDX stock is up 13% in after hours trading.

Looking at a slightly longer term, FDX stock has seen little change, moving slightly from levels of $260 in early January 2021 to around $265 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. Overall, the performance of FDX stock with respect to the index has been lackluster. Returns for the stock were 0% in 2021, -33% in 2022, and 46% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that FDX underperformed the S&P in 2021 and 2022.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could FDX face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, and assuming the stock opens up around $300 today, it looks appropriately priced. We estimate FedEx’s Valuation to be $294 per share, based on a 16x forward expected adjusted earnings of $17.85, slightly above the 14x average over the last five years. However, the P/E falls to a little under 14x if we consider fiscal 2025 expected earnings of $21.47.

FedEx’s Revenue fell 2% y-o-y to $21.7 billion, primarily due to lower average volumes. The overall top-line fell slightly short of our estimates. We expected a slight uptick in overall volume, but the Express and Ground average daily package volume declined 1.1% y-o-y. FedEx also saw its adjusted operating margin expand by 90 bps to 6.2% in Q3’24. This clubbed with a 1% decline in average shares outstanding, amid share repurchases, resulted in a 13% rise in the bottom line to $3.86 on an adjusted basis.

Looking forward, FedEx expects a low single-digit decline in total revenues for fiscal 2024. It narrowed its earnings outlook to now be in the range of $17.25 and $18.25, compared to its prior guidance of $17.00 and $18.50 range. We forecast the 2024 revenue to be around $88.3 billion, reflecting a 2% y-o-y decline, and adjusted earnings to be $17.85, versus $14.96 in fiscal 2023. While FedEx will likely benefit from its market share gains in parcel delivery and its focus on improving margins, at around $300 levels, we think the positives will largely be priced in.